Risk management in forex trading

Be careful but don’t hesitate.
Be careful, your money can evaporate just like that if you dont pay attention to risk managemen in forex trading. Remember that forex trading investments are classified as high risk investment. This means that forex trading is considered having unpredictable return depends on risk management and your trading pattern. One of the highest risk among other financial investment instruments.
Risk factors that you should know before start forex trading:
1. Have the possibility of losing 100% funds
2. The flow of funds is very fast
3. There is no forex trading method that can guarantee you gain profit. There are many good trading method, but no one can guarantee 100% profit
4. Forex trading is not a “quick rich scheme” that can make you rich quick without working hard. There is no success without hard work. Hard work is an integral part of those who experience financial success in life. Including those who succeed through forex trading.
It takes hard work to learn the analysis and market behavior so that we can guess the direction of price movement accurately. So you’ll also need extra mental power when doing trading that results something that you dont expect.
Ask successful traders that you know, whether they had experienced ups and downs in their forex trading. And the answer almost certainly is “yes.” Success is only for those who want to try and learn continuously improve themself.
Associated with trading risks that must be faced if we want to start investing in forex, it needs special tips to minimize, or even reverse our position that was minus a positive return and earn a profit. Here are some tips and risk management you can take:

1. Cut Loss

Represents action to close your position opposite the market price movement. Cut loss used to limit the losses suffered to avoid even a greater losses.
For example, say we’re opening our position on Open Buy GBPUSD at 1.8000 price. Open a Buy position means that we expect prices to rise above 1.8000. Our hope as the price moves up to 1.8100 so that we can obtain 100 points profit. But suddenly the situation turns out and the price moves against what we expect. It turned out that the price goes down continually from 1.8000 to 1.7980 and still showed a tendency to fall.
Well, rather than experiencing a further loss or ultimately experience a margin call, the better decision is to bear the loss even though we closed minus 20 points (1.8000 to 1.7980 = -20 points). This action is called the cut loss of closing wrong positions in order to prevent greater losses.

2. Switching

This action is similar to cut loss, but the difference is after we close the wrong position (loss), we open a new position with the same direction as the market price movement. In the same case with a cut loss above, then we close our position at 1.7980 and then we open a new position Sell as prices tend to decrease. Thus, if prices continue to fall, say reach 1.7900 then our overall experience loss 20 points but gain profit by 80 points (1.7980-1.7900 = 80) so that the total profit we still get 60 points.
Tips For You: # Do it only if the profit prediction exceeds the loss of switching the first position which will be closed. # If it turns out the price change was in accordance with the first prediction, then you will suffer a 2 times loss, the first position and second position as well.

3. Averaging

This method requires extra capital to maintain the position we open that was moving against the market price movement. Say it is the same case with the example above (Cut Loss), if we want to take averaging action then we open a new position but in this case is not like switching (closing a loss position and then open a new position in opposite direction to the closed position). In averaging we are not closing our position which has been opened (in this case Open Buy) and then we open new positions in the same direction.
Why is that? The reason is simple, we would expect the price has come down then the price will go up so that when we perform a second Buy action and expecting the price moves up and even surpass our first Buy position so that we gain a double profit.

The three risk management mentioned above is very simple and easy to do. So, how unfortunately we suffered a loss just because we do not know the things above. But whether by knowing these three risk management we certainly will never experienced loss? No, of course not.
If you look at the three risk management above  relies on one thing: our ability to analyze price movements. Yes, that’s the core of forex trading. Risk management doesnt even become effective when we are not able to do the analysis correctly and accurately. So, knowing the analysis is imperative in starting an investment in forex trading.

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Market participants

Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0-1 pip to 1-2 pips for a currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”.^[9] Central banks also participate in the foreign exchange market to align currencies to their economic needs.

Banks

The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for large fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.^{[citation needed]}

Commercial companies

An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

Forex Fixing

Forex fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the forex market. Banks, dealers and online foreign exchange traders use fixing rates as a trend indicator.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.^[10] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90%^{[citation needed]} of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.
Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Retail foreign exchange traders

Retail traders (individuals) constitute a growing segment of this market with the advent of retail forex platforms, both in size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the CFTC and NFA have in the past been subjected to periodic foreign exchange scams.^[11][12] To deal with the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller and perhaps questionable brokers are now gone or have moved to countries outside the US. A number of the forex brokers operate from the UK under FSA regulations where forex trading using margin is part of the wider over-the-counter derivatives trading industry that includes CFDs and financial spread betting.
There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal at. The customer then has the choice whether or not to trade at that price.
In assessing the suitability of an FX trading service, the customer should consider the ramifications of whether the service provider is acting as principal or agent. When the service provider acts as agent, the customer is generally assured of a known cost above the best inter-dealer FX rate. When the service provider acts as principal, no commission is paid, but the price offered may not be the best available in the market—since the service provider is taking the other side of the transaction, a conflict of interest may occur.

Non-bank foreign exchange companies

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but rather currency exchange with payments (i.e., there is usually a physical delivery of currency to a bank account).
It is estimated that in the UK, 14% of currency transfers/payments^[13] are made via Foreign Exchange Companies.^[14] These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

Money transfer/remittance companies

Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally followed by UAE Exchange

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What is VertexFX

Hybrid Solutions offers a strategic on-line trading system through VertexFX which is now one of the main reliable trading systems on a global scale. In addition, our online technical support and customer care are dedicated to our customers and to resolving any kind of business or technical problems as Hybrid Solutions’ philosophy is to establish a real partnership with customers, where we regard our capital to be our customers’ success.

VertexFX Trader is a total solution for Global Markets Online Trading especially designed to fulfill all of brokers, Market Makers, Clearing houses, Banks, Central Banks and financial institutes. Its structure consists of a set of Application Servers Connected to an SQL Database, Client Terminals and Dealing Room Applications as described in the Figure bellow and can be hosted starting from single server for small businesses to several servers to achieve load balancing for enterprises implementations. See Optimum server structure.

VertexFX Platform is designed to run online through any low internet bandwidth connection. With its low bansdwidth consuption, it can work fairly with good performance with low internet speed through VertexFX streaming messages communication technology. No third party applications are required to run VertexFX Client Terminal; it’s a standalone desktop 7MB application. Some Backoffice applications requires .NET framework. All system modules are windows 32 bit applications supports starting from Windows 98 till Windows 7. For Traders who need to trade through Brokers’ Websites directly, they can run the VertexFX WEB Trader special WEB based terminal. Trades can run the VertexFX Mobile (Windows Mobile) to trade online and wirelessly.

VertexFX is a closed loop trading solution. Server is Fed by any DDE/API Data feed Provider to broadcast Currency prices, trader is placing his Market or Limit Order through one of its client terminals, reaching Backoffice dealing desk, acknowledged by one of the dealing desk applications either manually or automatically and hedged (optionally) through VertexFX Risk management bridge with other external liquidity provider according to the dealing room clearing policy. Through this description, VertexFX Trader supports Market Makers (Over The Counter OTC) business model or Straight Through Processing STP one according to the Bridge configuration scenarios. It can also be configured to work in both models STP and OTC for the same corporate by its Multi-Level Management capabilities per Symbol per group of accounts.

VertexFX Trader is the best solution for Dealing rooms as it can serve their need for all of:

1. Online Trading for public through Desktop, WEB or Mobile Trading Terminals.
2. Multi-level Account group hierarchical structure which enables Dealing room build their groups in a way that gives infinite management capabilities for most of the system parameters per symbol per group as Spread, Commissions, Max Trade per deal, Minimum Trade per deal, Interest, Symbol Visibility .. etc.
3. VertexFX will enable Dealing room to manage their risk through implementing VertexFX Trader in the STP model either for all of the company or for part of it. VertexFX Risk Management Bridge is built to cover this need.
4. VertexFX SQL database (preferred to be Oracle 9i), will give dealing room perfect integration capabilities supported by VertexFX API development kit.

VertexFX is a worldwide electronic platform for Foreign Exchange trading, designed by Online Trading Experts and Financial Consultants and developed with international technical expertise. VertexFX is a windows-based, easily downloadable, secured, fast and interactive system shipped with all its modules:

• BackOffice Modules:
  The main management system that all clients and offices are connected to for asking or bidding quotes, where it is installed in the market maker or in the Bank dealing room, and through it continuous request from the clients who are connected to this back-office dealing room will be received.  

• Client Modules: 
  The client/broker module (Desktop, WEB or Mobile terminals) through which trader can trade with specific Dealing room.
• Application Servers:
  A set of applications servers hosted in on or more server consist of the following main server:

In addition, VertexFX Trader platform can be hosted at our datacenter or at customer site. Read more about system structure.

General features include

• Real time streaming prices for spots, crosses, futures and commodities
• Windows GUI, an easy, fast and friendly trading environment.
• VertexFX is a plug-n-play online trading system, neither Java Virtual Machine nor any other third party hardware or software is required to run the system and start trading.
  
• Customization capabilities of trading formulae, trading working hours, users and security definition in a wide band of authentication levels in addition to customizable deal sizes.
  
• 24/6 online technical support.

Competitive Features

According to our philosophy of constructing a rapidly expandable market makers’ network, we have built the VertexFX EMM feature to enhance the concept of network marketing for the purpose of market making view. EMM means Building a multiple level of Introducer Brokers (IBs), providing Brokers and Clients with multiple accounts to be part of the main market maker node

VertexFX is not only a solution built on high standards but it is a real unique solution that fits all Online Trading needs with the following competitive features:

• Backoffice Multi Level Management Capabilities. Attached a VertexFX multi-level Management Article.
•  Built in SMS system for alerts and notifications. Attached VertexFX SMS feature article.
•  Bridging capabilities through VertexFX Bridge. Attached VertexFX Bridge article
• Auto dealer through VertexFX Smart Dealer. Attached VertexFX Smart Dealer article.
•  WEB based client trading terminal. Attached VertexFX Web Trade Article.
• Wide charting history for symbols with more than 80 built in indicators. Attached VertexFX Charting article.
• Auto trading capabilities through API and scripts. Attached VertexFX API article.
•  Light downloadable and independent desktop applications.
• Multi Account trading capabilities through VertexFX E-Broker. Attached VertexFX E-Broker article.
• Built in Online data mirroring capabilities for disaster recovery strategies. Attached VertexFX Online Mirroring article.

 For more Information See at http://www.hybrid-solutions.com

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Dollar tumbles to 3-year low

The dollar slumped to a three-year low against major currencies on Wednesday and its outlook darkened further as surprisingly soft economic data underpinned expectations that U.S. interest rates will remain low this year.
The greenback also fell to a record low against the Swiss franc and against the yen fell below 80.50, the lowest level since major central banks intervened to weaken the Japanese currency on March 18.
Separate reports on Wednesday showed a sharp slowdown in the vast U.S. services sector and less hiring by private companies in April.
"U.S. data have not been strong enough for the Fed to resume raising interest rates," said Geoffrey Yu, senior currency strategist at UBS in Stamford, Connecticut. For details, see [ID:nN04209762]
"The Fed has raised the bar for a policy tightening and it's going to remain the case for some time ahead. It's just a question of, When will the Fed really signal a change in direction? Right now, that doesn't seem to be the case."
In late afternoon trading, the ICE Futures' dollar index, which measures the greenback against a basket of major currencies, dropped to 72.696, its weakest level since July 2008. The index has fallen in 11 of the last 12 sessions and is down 7.7 percent this year <.DXY>.
The euro, on the other hand, remained fairly well supported on expectations of higher euro zone interest rates and strong sovereign demand.
The European Central Bank is scheduled to hold a monetary policy meeting on Thursday. It raised rates in April for the first time since 2008, but may hold them steady at Thursday's meeting.
Markets, however, have already fully priced in expectations of an ECB rate hike in July, on the need to rein in inflation, and have started to factor in some probability of an increase in June.
Investors shrugged off news that Portugal had become the third euro zone country in the last year to need a bailout.
The single currency rose as high as $1.49404 on trading platform EBS, the highest level since December 2009. It was last at $1.48317, flat on the day. Traders said the euro remained hampered by options barriers at $1.4950 and $1.5000.
They said a move above $1.50 is likely but would probably have to wait until after the ECB meeting.
Implied volatility in one-month euro/dollar options gained, rising to 11.20 percent on Wednesday from 10.90 percent on Tuesday, reflecting uncertainty as to the timing of the next ECB rate increase.
Options traders were also nervous that the ECB's president, Jean-Claude Trichet, may disappoint investors and make less-hawkish comments than in his previous statements.
In addition, risk reversals, a broad measure of sentiment in the options market, on one-month euro/dollar options are still betting on a decline in the euro against the dollar. The gauge is showing a solid bias for puts despite an 11 percent surge in the single currency this year.
On Wednesday, euro/dollar risk reversals were at -1.50 vols , with a skew for puts, from -1.45 on Tuesday.
Thomas Stopler, chief currency strategist at Goldman Sachs in London, said continued concerns about euro zone debt are only partly the cause.
"It is also important to recognize that many other dollar crosses still display a similar skew," he said. "This in turn suggests FX option markets continue to be influenced by cross asset hedging flows."
In other currencies, the dollar fell to a record trough against the Swiss franc at 0.8554 franc and last changed hands at 0.8615 franc, down 0.2 percent.
Against the yen , the dollar sank to 80.44, a six-week low and last traded at 80.56 yen, down 0.5 percent.
If it falls further, analysts said it could put markets on alert for official intervention to slow the pace of yen gains.
A strong yen could hurt Japan's export-led economy as it struggles with slow growth and the aftermath of the March earthquake and tsunami.
The slide in commodities supported the greenback against commodity-linked currencies such as the Australian and Canadian dollars.
The Australian dollar fell further from a nearly three-decade high of US$1.1012; it was last at US$1.0743, down 0.9 percent .
The Canadian dollar also fell, pushing the greenback 0.5 percent higher at C$0.9573 . (Additional reporting by Steven C. Johnson; Editing by Leslie Adler) 

Reuters

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Buru Automated Forex

Buru Automated Forex

Buru is an MT4 Expert Advisor that is only available to trade through IBFX Australia.

Features

• 30 day money back guarantee!
• Expert Advisor for MetaTrader 4
• Automates Forex Trading
• Buru is only available for non-US customers
• IBFX Australia systems are optimized to handle large lot and high-frequency trades from EAs like Buru.
• Fast, reliable execution – 99.8% execution rates (October 1 – 31, 2010).
• Award-winning customer service supporting 10 languages in house
• Fast, flexible deposit and withdrawal options, with a proprietary Global Debit Card

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